Which term refers to the amount of interest charged per day on a loan?

The term that refers to the amount of interest charged per day on a loan is per diem interest. This concept is particularly important in lending because it allows both borrowers and lenders to understand how interest accrues on a loan on a daily basis.

Per diem interest is calculated by taking the annual interest rate, dividing it by the number of days in the year (typically 365, or 360 in some cases), and multiplying that by the outstanding loan balance. This measurement is especially useful in scenarios like escrow calculations, where buyers may need to account for interest from the closing date until the first payment date.

In contrast, amortization refers to the process of gradually paying off a loan over time through regular payments. The annual percentage rate (APR) represents the total annual cost of borrowing, expressed as a percentage, which encompasses not only the interest cost but also any additional fees involved in securing the loan. Fixed interest describes an interest rate that remains the same throughout the entire term of the loan, rather than fluctuating like variable rates. Understanding these distinctions enhances a borrower’s ability to make informed financial decisions regarding loans.